Getting Employees’ Attention for Retirement Planning

Employee engagement is one of four critical drivers that
contribute to a successful retirement plan, along with plan design, plan
management and investment solutions, according to a white paper from TIAA-CREF, “Retirement
readiness starts with employee engagement.” An employer has direct
control over these last three drivers, but without an effective employee
engagement strategy, their impact will likely be diminished.

In addition, employee engagement plays a critical part in
fulfilling a plan sponsor’s fiduciary responsibility to help employees achieve
the best possible outcomes. According to the paper, the good news is plan
sponsors are in a position to positively influence their employees’ behavior,
as 81% of employees trust the financial advice provided by their employers,
according to TIAA-CREF’s
Investment Options Survey.

In addition to the white paper, TIAA-CREF offers a checklist of five steps to
successful employee engagement.

Establishing Plan Goals and Benchmarks

Accurately defined metrics can help sponsors set objectives
for an employee engagement strategy, according to the paper.

Ed Moslander, senior managing director and head of
institutional client services at TIAA-CREF in New York, explains that there are
two kinds of metrics—macro and technical. On the macro side it’s about defining
retirement readiness. “For us that means income replacement ratio, and what
level of after-tax income the plan sponsor is looking to provide either through
the plan itself or in conjunction with Social Security,” Moslander tells PLANADVSIER.

Moslander
says establishing the level of retirement readiness plan sponsors are shooting
for is a good start, but it doesn’t change much. That’s where the technical
metrics come into play, he says. Plan sponsors should set goals for the things
that can change—participation rate, deferral rates, investment types, default
fund, and advice offerings. For example, Moslander says TIAA-CREF has worked
with plan sponsors to examine their plans and determine which participants are
clearly misallocated in investments, so plan sponsors can enact change that can
affect them.

Use Tailored Communications

Customized messaging can also help sponsors target and
influence their key audiences, according to TIAA-CREF.

“This is the thing that probably has the potential to affect
the most change,” Moslander says. “Historically, we’ve been using
‘one-size-fits-all messaging,’ and it hasn’t been tremendously effective.”
TIAA-CREF suggests plan sponsors segment participants, not just by age or
gender, but by lifecycle and interests.

In the white paper, TIAA-CREF segments employees into five
distinct groups:

Focusing
on daily expenses. These employees live paycheck to paycheck and have
limited financial flexibility. They are likely to be most responsive to
communications about budgeting and meeting immediate financial needs.

Starting
to put money aside. These workers are moving toward planning for financial
stability, but they need help balancing short-term goals—such as buying a
home, paying or saving for education, and enjoying leisure activities—with
long-term retirement planning.

Continuing
to save and invest. These workers are relatively well-off but are eager
for help as complex financial circumstances make decision-making more
difficult.

Nearing
retirement. These workers need to formulate a plan for transitioning to
their post-work years, including strategies for lifetime income.

Living
in retirement. Having stopped working, these plan participants need to
understand how to turn their savings into income, and also need help with
topics such as health care savings and estate planning.

“The 35-year-old with a mortgage and other debt and trying
to save for college should not be getting the same message as the 55-year-old
getting ready to retire,” Moslander states.

According to Moslander, group sessions are effective for
some cohorts of similarly situated people; when put into similar groups,
participants may feel comfortable opening up and asking things they wouldn’t
usually.

Leverage Technology

TIAA-CREF urges sponsors to engage with participants by using
the right channels to enhance their retirement planning experience.

According to the white paper, mobile traffic at TIAA-CREF
doubled in 2013, with three million visits from its participants (19% of the
total) coming from tablets and smartphones. The firm has found technology is
more popular with younger people, and has leveraged gamification successfully.
It’s about meeting people where they are, Moslander says.

On
the other hand, he points out, when it comes to those participants close to
retirement, there’s no way to set up an income stream without talking to
someone. “That’s a complicated thing. They may be transitioning into retirement
or jumping off a cliff into retirement. They may have a spouse’s income [to
rely on]. So, talking to an objective counselor is necessary,” he states.

Make Guidance a Priority

In addition to investment advice, sponsors may choose to
offer guidance by providing participants with investment recommendations.

According to TIAA-CREF’s white paper, guidance is provided
via workshops, printed or online materials, online tools and calculators and
one-on-one consultations with financial experts. Guidance may be enough for
some employees, but others may want or need more direct help in making
retirement planning and investing decisions.

Advice is the answer for those employees looking for
specific fund recommendations that are tailored to their individual
circumstances, and that are immediately actionable, the paper says. Advice, as
defined under the Employee Retirement Income Security Act (ERISA), comes with a
fiduciary duty, which is one of the reasons plan sponsors often offer advice
through their financial services provider or another third-party provider.

There are different times when specific investment
recommendations are most appropriate, Moslander notes. “How much to save, when
to begin, how to allocate, what specific funds, setting up an income stream at
retirement—these are times advice is important,” he says, adding that advice
should consider the participant’s complete financial situation. “For example,
you can’t just tell a 35-year-old to max out their savings, they may have a lot
of other things going on.”

Moslander adds that TIAA-CREF has found advice really works;
among employees who tapped in-person retirement advice in one recent five-year
period, 68% chose to either save more, change their future allocations or
rebalance their portfolios.

Monitor the Effectiveness of Your Strategy

TIAA-CREF says sponsors also must recognize that employee
engagement is an ongoing process, so an ongoing partnership with plan providers
is key to monitoring and achieving success.

“In a sense this is the most important thing,” Moslander
says. He explains that TIAA-CREF has seen the most success engaging employees
when the employer is really engaged. “You can’t get participants engaged if the
employer is not committed to making it work.”

Once an employer is engaged and agrees on approaches to
reaching participants, it stays engaged by monitoring results and making
corrections. The same approaches do not work everywhere, Moslander notes. Plan
sponsors can figure out what works and with whom by looking at the data about
participant engagement in communication efforts. “You do this so that, with
limited resources—dollars or people, you can target your energy where it is
more effective,” he says.

Moslander
concludes that employee engagement has been a struggle for the financial
services industry and plan sponsors, and the solution revolves around
segmentation, technology and multi-channel communications, and advice and
guidance—the three components that can turn things around for unengaged
participants. He adds that a big change in the past few years is the technology
to meet employees where they are. “That has helped us get results.”